In response to Russia’s further aggression against Ukraine and its illegal annexation of the Donetsk, Kherson, Luhansk and Zaporizhzhia regions (the Occupied Regions), the European Union (EU) has adopted a new sanctions package against Russia, which has now been published here in the Official Journal of the EU.
Further Financial and Economic Restrictions on Russia
Regulation (EU) 833/2014 (Regulation 833) has been amended to expand the existing financial and economic restrictions, imposing wide-ranging economic restrictions aimed at cutting off Russian access to the most important capital markets and the Russian defence, energy and aviation sectors. Specifically, the new measures include:
FURTHER EXTENSION OF RESTRICTIONS ON SERVICES
The EU has expanded on the prohibitions it imposed in June 2022 on the provision of certain professional services to the Russian government or Russia-incorporated entities. Under the newly amended Article 5n of Regulation 833, it is now prohibited for those within the scope of EU sanctions laws to directly or indirectly provide architectural and engineering services, legal advisory services and IT consultancy services to those entities. Such services are defined in the preamble of the amending regulation (Regulation (EU) 2022/1904), rather than in Regulation 833 itself. Specifically:
‘Architectural and engineering services’ covers both architectural and engineering services as well as integrated engineering services, urban planning and landscape architectural services, and engineering-related scientific and technical consulting services. The provision of technical assistance related to goods exported to Russia remains allowed, provided that the sale, supply, transfer or export of such goods is not prohibited under Regulation 833 at the time at which such technical assistance is provided.
‘IT consultancy services’ covers consultancy services related to the installation of computer hardware, including assistance services to the clients in the installation of computer hardware (i.e., physical equipment) and computer networks, and software implementation services, including all services involving consultancy services on, development of and implementation of software.
‘Legal advisory services’ cover the provision of legal advice to customers in non-contentious matters, including commercial transactions, involving the application or interpretation of law; participation with or on behalf of clients in commercial transactions, negotiations and other dealings with third parties; and preparation, execution and verification of legal documents. The scope of such services does not cover representation, advice, preparation of documents or verification of documents in the context of legal representation services, namely in matters or proceedings before administrative agencies, courts or other duly constituted official tribunals, or in arbitral or mediation proceedings.
EXCEPTIONS AND LICENSES
There are various exceptions and licensing grounds applicable to the new services restrictions. The prohibitions shall not apply to in-scope services, which are:
Intended for the exclusive use of legal persons, entities or bodies established in Russia that are owned by, or solely or jointly controlled by, an entity incorporated in a Member State, a country member of the European Economic Area, Switzerland or a ‘partner country’. The list of ‘partner countries’ currently includes the United Kingdom, Japan, South Korea and the United States;
Strictly necessary for the termination by 8 January 2023 of contracts that are not compliant with EU restrictions concluded before 7 October 2022, or of ancillary contracts necessary for the execution of such contracts;
Necessary for a range of public health-related emergencies;
Necessary for software updates for non-military use and non-military end user in relation to goods listed in Annex VII of Regulation 833;
Services strictly necessary for the exercise of the right of defence in a judicial proceeding and the right to an effective legal remedy; and
Services that are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, or for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State.
There are also a number of grounds for which Member States can authorise the provision of in-scope services where they are deemed appropriate and necessary for (a) humanitarian purposes; (b) civil society activities that promote democracy and human rights and the rule of law in Russia; (c) the functioning of diplomatic and consular representations; (d) ensuring critical energy supply within the EU; (e) ensuring continuous operation of, and/or the establishment of various critical infrastructures in the EU relating to, among other things, security, nuclear energy, environmental stability and public health; and (f) the provision of electronic communication services necessary for the operation and security of electronic communications in Russia, Ukraine and the EU.
Legal advisors within the jurisdictional scope of EU sanctions laws (such as those located within the EU, or who are nationals of an EU Member State) must carefully consider whether and on what basis they can continue to work for Russian legal entities. Although there is a wind-down period for in-scope legal services provided pursuant to engagements concluded before 7 October 2022 until 8 January 2023, lawyers should bear in mind whether the services they provide during this period are “strictly necessary” for the engagement’s termination.
RESTRICTIONS ON IMPORT AND EXPORT
New import and export restrictions have also been introduced to Regulation 833, which include:
A ban on Imports of further iron and steel products which either originate in, or have been exported from, Russia (Article 3g and Annex XVII);
New import restrictions on listed items originating in, or exported from, Russia that generate significant revenues for Russia. This includes wood pulp and paper, certain elements used in the jewelry industry, certain machinery and chemical items, cigarettes, plastics and finished chemical products such as cosmetics (Article 3i and Annex XXI);
An export ban on further items which could contribute to the enhancement of Russian industrial capacities (Article 3k and Annex XXIII);
Additional restrictions on the sale, supply, transfer or export of goods used in the aviation sector to Russia (Article 3c and Annex XI);
The extension of the list of items subject to an export ban that might contribute to Russia’s military and technological enhancement or to the development of its defence and security sector (Article 2a and Annex VII); and
The prohibition on the sale, supply, transfer or export of firearms, their parts and essential components and ammunition, and the prohibition to provide technical assistance, brokering services, other services, and financing or financial assistance related to these goods (Article 2aa, with the relevant goods being listed in Annex I to Regulation (EU) 258/2012).
Many prohibitions also prohibit the provision of technical assistance, brokering services or financing or financial assistance in relation to restricted imports and exports of restricted goods.
BANS ON TRANSACTING WITH CERTAIN RUSSIAN STATE-OWNED ENTITIES
The prohibition on engaging in any transaction with certain Russian State-owned or controlled entities (Article 5aa of Regulation 833) has been expanded to include a ban on EU nationals holding any posts on the governing bodies of listed entities.
The Russian Maritime Register of Shipping has been added to the Annex XIX list of entities subject to the transaction ban. Further, the Article 3ea ban on certain vessels being granted access to EU ports and locks has been expanded to include vessels certified by the Russian Maritime Register of Shipping (Article 3ea).
Further prohibitions have been introduced on the maritime transport of crude oil and certain petroleum products to third countries (Article 3n of Regulation 833). For example, it will be prohibited to transport to third countries certain Russian crude oil products as of 5 December 2022, and certain petroleum products as of 5 February 2023 (as listed in Annex XXV). This prohibition will not apply where the price per barrel does not exceed the price cap laid down in Annex XXVIII of Regulation 833 (which is yet to be published).
BAN ON THE PROVISION OF CRYPTO ASSET-RELATED SERVICES
The provision of crypto-asset wallet, account or custody services to Russian persons and residents—irrespective of the assets’ value—has been banned. Previously, such services were allowed in respect of assets worth up to €10,000. (Article 5b of Regulation 833).
TARGETED SANCTIONS ON RUSSIAN ENTITIES AND INDIVIDUALS
The EU has expanded the scope of financial sanctions (asset freezes) by amending Regulation (EU) 269/2014 (Regulation 269). This includes the following measures:
The imposition of asset freezes to 30 new persons and seven new entities. Altogether, the EU’s restrictive measures now apply to 1,262 individuals and 118 entities. The EU complemented this by mandating that individuals and entities that ‘facilitate’ prohibited activities—including facilitating other individuals/entities in circumventing prohibitions—are potentially liable to be listed as a sanctioned individual or entity.
The introduction of a requirement for Member States to inform within two weeks other Member States and the European Commission whenever they authorise payments to the Crimean Sea Ports for services provided at the ports of (i) Kerch Fishery Port, (ii) Yalta Commercial Port and (iii) Evpatoria Commercial Port, and for services provided by Gosgidrografiya and by Port-Terminal branches of the Crimean Sea Ports pursuant to Article 6a.
Two new licensing grounds have been enacted which allow competent authorities of a Member State to authorise the release of certain frozen funds or economic resources where:
Necessary for the completion of transactions, including sales, with PJSC Kamaz (entry 91 in the asset freeze entity list), which are strictly necessary for the wind-down, by 31 December 2022, of a joint venture or similar legal arrangement concluded before 16 March 2022 involving an entity listed in Annex XIX to Regulation 833; and
A competent authority deems it appropriate and necessary for the termination, by 7 January 2023, of operations, contracts or other agreements concluded with the National Settlement Depository (entry 101 in the asset freeze entity list) before 3 June 2022.
The latest raft of EU sanctions has expanded the scope of prohibitions significantly and could have a substantial impact on those still providing in-scope goods and services to the Russian government or Russian legal persons. The expanded services prohibitions, as well as the additional ground for designating those that facilitate the circumvention of EU sanctions laws, show that the EU’s focus is not just those who transact with Russian entities but also those who advise on and facilitate such transactions. Even those with an ancillary role in a transaction having a nexus with Russia should consider whether the transaction falls within the scope of EU sanctions and whether they can continue to act.
The above being said, it will be a welcome development for many businesses with international operations that exclusions to several prohibitions have been expanded, to enable certain in-scope goods and services to be provided to Russian entities where they are owned by corporates incorporated in the United Kingdom, United States, Japan or South Korea.
It seems likely that the EU’s sanctions against Russia are only going to expand in scope, so the position should be monitored regularly for developments. To the extent that you have any questions as to the scope and application of EU sanctions, please do not hesitate to contact Raminta Dereskeviciute.